WIOF India Performance Fund Featured Fund (1. – 31. 12. 2016)

01.12.2016

With one of the fastest growing economies in the world, a pro-reform government which is overhauling the economy and investment environment and a rapidly-expanding middle class that is set to help transform the country into one of the world’s largest consumer economies within a decade, India has become a magnet for investors. The award-winning WIOF Indian Performance Fund offers investors the chance to invest in what has become the undisputed star among emerging markets and an economy rich in investment potential and opportunity.

WHY INDIA?

Over the last decade investors have become increasingly aware of India’s potential. Already the third largest economy in the world in purchasing power parity (PPP) terms, economists have for years been pointing out the strong fundamentals underpinning its growth. These include an expanding and increasingly affluent middle class driving domestic consumption; positive demographic and employment trends - a total available workforce of 750 million people and 13 million entering India’s urban workforce each year – as well as, among others, plans for development of financial markets and a focus on infrastructure projects.

This has brought consistent major investment into the country. India has ranked among the world’s top ten investment destinations over the last decade and has attracted USD195 billion in FDI in the past five years alone.

But following elections in 2014 and the appointment of reform-championing Narendra Modi as Prime Minister, it has become even more attractive.

GDP (% CHANGE)

As Umesh Gupta, Fund Manager at Reliance Wealth Management and portfolio manager for the WIOF India Performance Fund says: “As the world takes note of India’s economic resilience, a gush of foreign investments has been seen over the past couple of years. Reports suggest healthy growth of FDI in India, as compared to a decline in major emerging economies including Brazil, Russia, China, South Africa and Indonesia. We feel the combination of China’s growth rate slowing and India’s resilience in the midst of global volatility has prompted investors to look at India as a good long term investment avenue.

“The growth potential for India, on a long-term basis, is far higher than that of a lot of other markets, thanks to a number of factors including industrialization, changing demographics and the reform programme the government is implementing. It has strong demographics, represented by a growing middle class, an increasing population of consumers and a deepening pool of workforce talent.”

PERFORMANCE (USD)

REFORMS AND REBRANDING

Since being elected, Prime Minister Modi has led an international drive to rebrand India as a dynamic, high-growth economy, pulling in FDI. At the same time the government has pursued a strong reform programme designed to improve the economy and the climate for business.

Among these is a recently approved landmark tax reform which will transform the country’s USD 2 trillion economy, closing tax loopholes and overhauling an outdated, expensive and cumbersome tax system which left some business unregulated and differing tax rates in various states across the country. The passing by parliament of the Goods and Services Bill in August also means Indians will pay less for a wide range of consumer goods and services. It has described as one of the most important economic reforms to the country in its history and according to some estimates, this could add an extra 2% to the country’s economic growth rate.

But the government has implemeted, or is planning to implement, other key reforms in a host of other areas to help business and consumers, including:

Boosting domestic investments in start-ups with legislative changes to help companies list on bourses more easily

Structural reforms to help financial inclusion

Commitment to public spending on infrastructure and other sectors

Comprehensive insolvency and bankruptcy laws which will address the balance-sheet woes of public sector banks, force delinquent borrowers to rearrange their balance sheets and kick-start stalled projects.

While these reforms have been pushed forward, Indian firms’ business activity has been growing. In the first six months of this year, there was an 82% rise in total mergers and acquisitions deals involving Indian companies, rising to USD27 billion in the period. This is the highest figure for the first half of a year since 2011.

Meanwhile, the government’s fiscal and monetary policy, higher infrastructure spending and increased fiscal devolution have improved India’s economic outlook. According to the IMF, the Indian economy should grow at 7.4% in 2016 and 2017 – outstripping major developed economies as well as most other emerging markets – and rising to 7.6% in 2018.

WHY THE WIOF INDIA PERFORMANCE FUND?

The Fund, which was named Equity Fund of the Year 2014 in a survey of Slovak mutual funds by Slovak financial company Fincentrum and international finance magazine Forbes, has consistently outperformed. The potential for investors in Indian equities can be seen in the Fund’s massive outperformance in recent years. As of 1.10.2016, the Fund had an absolute return of 106% over three years (Class I) in USD terms. This is compared to an absolute return of just 30.5% for the MSCI India index over the same period. These results have been recognised by major ratings agencies and the Fund holds a 5-star rating – the highest possible rating - from Morningstar international fund ratings agency for its performance over the last three years (Class I USD as of 1.10.2016).

The Fund is also in expert hands. Its portfolio is managed by Indian asset management specialists Reliance Wealth Management Ltd. The Fund’s portfolio managers say that its long-term outperformance has been down to the expert stock selection process it uses. Gupta explains: “The fund’s performance was possible because of the bottom-up stock-picking philosophy which we employ. We try and stick to the key financial matrix of good, sustainable sales and earnings growth, healthy return ratios and low debt.”

The key elements of this selection process include:

The company should be in a growth phase: high-growth companies whose top-line and bottom-line are growing faster than the overall market

Valuation should be reasonable: P/E less than earnings growth. We like good quality at a reasonable price (GARP) vs. low quality at a perceived “cheap” price

Earnings: a track record of superior and consistent earnings. Earnings growth should be faster than the market for a considerably lengthy period on a sustainable basis

Business Quality should be good: low leverage and low capital intensity, non-commoditised businesses, high and sustainable Return on Equity (RoE)

The company’s management should adhere to a high Corporate Governance standard and its capital allocation and capital distribution practices must be sound.

Gupta says: “Stocks coming through these filters (over the medium to long term) are not only good candidates for capital appreciation but are also less prone to value erosion in volatile markets.”

OUTLOOK

At the moment, 2016 looks on course to be a positive, if not spectacular, year for Indian equities, with local markets having bounced back from a difficult 2015. The positive performance is all the more impressive considering the year started with a steep correction on local markets as emerging market stocks were sold off. The recovery since than has been solid and local market watchers have forecast that Indian stocks could deliver double-digit returns over the next year, with positive liquidity conditions, fundamentals and positive investor sentiment working in favour of the local market.

INVESTMENT ADVISER

The Fund’s investment adviser is Reliance Wealth Management Ltd. Part of the Reliance Anil Dhirubhai Ambani Group, Reliance Wealth Management Ltd is a niche provider of investment products to institutions, investment companies and high net-worth individuals in India and overseas. Its primary focus is on creating custom equity portfolios as segregated mandates and delivering value to clients.

IMPORTANT NOTE:This report has been prepared for information only, and it does not represent an offer to purchase or subscribe to shares. World Investment Opportunities Funds (“WIOF”) is registered on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 on collective investment undertakings as an open-ended investment company. WIOF believes that the information is correct at the date of production while obtained from carefully selected sources considered to be reliable. No warranty or representation is given to this effect and no liability can be assumed for the correctness or accuracy of the given information which may be subject to change at any time, without notice. Past performance provides neither a guarantee, nor an indication of future performance. Value of the shares and return they generate can fall as well as rise. Currency fluctuations, either up or down, may also affect value of the investment. Due to continuing market volatility and exchange rate fluctuations, the performance may be subject to significant changes over a short-term period. Investors should be aware that shares in the financial instruments entail investment risks, including the possible loss of the invested capital. Performance is usually calculated on the basis of the relevant NAV unless stated otherwise. Performance shown does not take account of any fees and costs associated with subscribing or redeeming shares. It is assumed that all dividends were reinvested. WIOF prospectus is available and may be obtained through www.1cornhill.com. Before investing in any WIOF Sub-fund(s) investors should contact their financial adviser/legal adviser/tax adviser and refer to all relevant documents relating to the WIOF and its particular Sub-fund(s), such as the latest annual report and prospectus that specify the particular risks associated with the Sub-fund, together with any specific restrictions applying, and the basis of dealing. In the event investors choose not to seek advice from a financial adviser/legal adviser/tax adviser, they should consider whether the WIOF is a suitable investment for them.